What Is Intellectual Capital Management (ICM)?

What is Intellectual Capital Management (ICM)?

By Dr Gordon McConnachie, Founding Chairman of Scottish Intellectual Assets Centre and

Chief Technology Officer of Asia Pacific Intellectual Capital Centre and Alan Lung, Director & General Manager of Asia Pacific Intellectual Capital Centre Intellectual Capital Management links scientific and technology R&D, innovation and intellectual property rights in a holistic management concept. However, it is not just technology oriented companies that will benefit from ICM. The capitalised value (i.e. stock market value) of many global companies such as Coca-Cola is many times above its fixed tangible assets and the only way to explain the difference is …

What is Intellectual Capital business relationships will start Management1 (ICM)? bringing in cash flow and other factors Intellectual Capital is defined as all that will contribute to future growth. knowledge within an organisation which has the potential to create value when In a nutshell, the Intellectual Capital applied in line with the mission, vision Management process involves: and goals of the organisation. It refers to • Analyzing existing enterprise the intangible capital (i.e. other than knowledge, updating it and recording financial capital) owned by companies: it as far as possible and making it • Human Capital: This is the value sharable within the enterprise in order people bring to current operations and to better fulfill the business plans. This future growth, becomes the enterprise’s ‘structural • Structural Capital: Also referred to as capital’; Organisation Capital, this is the • Creating the climate in which supporting infrastructure currently knowledge workers can best perform; supporting the company and the • Identifying possible sources of human capital, revenue that could be extracted from • Network Capital: Also referred to as existing structural capital and Customer and Supplier Capital, this is developing marketing plans for them; where strength and loyalty of • Optimising the value creation, customers, suppliers and other extraction and release cycles for new and existing initiatives and • Assessing risks involved in protecting 1 Original concept developed in the 1990s by early the enterprise’s intellectual assets (or ICM practitioners such as Sullivan, Edvinsson and structural capital) and using an Sveiby building on earlier work in Japan by Hirojuki effective intellectual property strategy Itami. 1

to minimize business risk. a fundamental business management tool Intellectual Capital Management links enterprises need to harness as they move scientific and technology R&D, innovation down the road of innovation and and intellectual property rights in a creativity. holistic management concept. However, it is not just technology oriented companies Knowledge Management (KM) that will benefit from ICM. The capitalised “Knowledge Management” (KM) is an value (i.e. stock market value) of many almost inter-changeable term to global companies such as Coca-Cola is “Intellectual Capital Management”: ICM many time above its fixed tangible assets distinguishes itself in that it is purely and the only way to explain the difference driven by the aims of the organization and is the intangible assets such as the brand this in fact is the source of its powerful name and business processes owned by nature. KM is a more widely known term the company. in Hong Kong because of the work of the Hong Kong Knowledge Management Mainland China is beginning to realise Society (founded around 1999 that it has lost many of its historical www.hkkms.org). In the earlier days of brands 2 and has been encouraging the the introduction of ICM concepts to Hong development of “Self-initiated Brand Kong, KM is commonly associated with Names” since the inauguration of the 11th and driven as part of “Information Five Year Plan (2007-2012). There have Technology” or “Human Resource also been many Asian cases, such as Management”. “Esprit” of Hong Kong and “Red Bull” of Thailand that made extremely smart use of ICM (but not necessary a lot of scientific Another View of Intellectual Capital and technology research) to take the great TOWARDS INNOVATION leap from being local brands to become globally recognised brands.

Knowledge & Intellectual Intellectual Innovation Know-How Property Assets ICM, particularly the creation and use of (Intellectual Capital) intellectual property (including registered trade marks from which brands are built) is the foundation on which knowledge economies of the world are built upon and Intellectual Capital: Knowledge that can be used to create value. Intellectual Asset: Codified knowledge to be used to create value.

Intellectual Property: Legally protected intellectual capital. 2 At one stage, Shanghai Toothpaste leased a 38 year Internationally, there are also many old brand name of Maxam Tooth Paste to Unilever as a schools of thought as regards KM, for form of cooperative joint venture but later reclaimed it example, “Social Network Analysis”, in 2001, claiming deliberate attempt made by its “Information Theory”, “Complexity business partner to down-play the Maxam brand that Approach”, “System Thinking” and results in market share loss. 2

“Capacity Based Approach”. The most itself as a “killer management application”. useful and dominant school links KM to It is still not perceived as something the conversion of internalised tacit companies must do for the sake of their knowledge into explicit codified own long-term survival. Some say “KM” knowledge, thus allowing successful is for dreamers probably because KM knowledge sharing (see Ikujiro Nonaka of practitioners in Hong Kong have yet to Japan). link “Learning” and “Sharing” to the hardnosed business of making a business It should be noted that the term profit (i.e. the emphasis on “Value “Intellectual Capital Management” (ICM) Extraction” as practiced by American was introduced by Tom Stewart through Companies). an article on Intellectual Capital published in Fortune magazine in October 1994 after Intellectual Assets Management it was first mentioned in discussions in his Intellectual Assets are the codified presence. The key creators of the term (documented) knowledge of companies ICM are: Leif Edvinsson (Sweden), and organisations. Some refer to Gordon Petrash (USA), Hubert St. Onge Intellectual Assets as the “Structural (Canada) and Patrick Sullivan (USA). The Capital” of companies. Intellectual Asset first company to adopt a full ICM Management (IAM) broadly refers to the approach was Skandia (a Swedish “Value Extraction” process of ICM Insurance company) in the 1990s under practice. The Scottish Intellectual Assets the leadership of Leif Edvinsson. The early Centre describes IAM as “the process of pioneers (seven companies that include both capturing and managing knowledge, Dow Chemical, DuPont, Hewlett-Packard, and fully exploiting it for commercial Hughes Space and Communication, gain.” In Japan, the ICM practice is known Hoffman LaRoche and Skandia) also got as Intellectual Asset-Based Management together in January 1995 to exchange notes (Ministry of Economy, Trade and Economy and formed the first ICM Gathering in (METI). ICM practitioners in Asia Pacific Berkeley, California, USA. From the should also take note of a term call “IP “Value Creation” stream as practiced in Asset Management and Utilization”, as an Europe by ICM gurus such as Leif initiative that will be driven by the Edvinsson and the “Value Extraction” Intellectual Property Rights Experts’ stream as practiced by leading American Group of the APEC Committee on Trade companies a holistic approach now and Investment. embracing value creation, value extraction and value release has emerged as a The first IC Centre in Asia is the IP powerful business tool which is new and Academy of Singapore acting in more powerful modern Intellectual co-operation with several Government Capital Management. Business Development agencies. Founding members of this very important In Hong Kong, KM has yet to establish IC Centre in Asia probably felt that

Intellectual Property ought to be the (IPD) is the government unit in charge of starting point when IP Academy of administering IPR systems and policies at Singapore was founded in 2003. The the HKSAR Government level, while the Scottish IA Centre (launched in November national level organization for China is 2004) felt that it should be focusing on The State Intellectual Property Office Intellectual Asset as it is probably more (SIPO) of the People’s Republic of China. difficult to deliver tangible economic Hong Kong has independent trade benefits to Scottish enterprises if they representation status in many were to cast the net too wide at the international organizations and is a beginning and include “Value Creation” member of nearly all of them, except the (or innovation) processes from the very World Intellectual Property Office (WIPO) start. However, it should be noted that the which, as a United Nations (UN) practices of the IC Centres of the world are organization, only recognizes merging and both IC and IA are offered in representative offices from sovereign most IC Centres. Asia Pacific Intellectual nations. In the case of WIPO, IPD Capital Centre (APICC) chose to call itself commonly participate as part of the an IC Centre (instead of an IP Centre or IA People’s Republic of China’s delegation in Centre) as it envisages that equal cooperation with SIPO and the Ministry of emphasis will be put on the “Value Foreign Affairs of China. Creation” (IC) , the “Value Extraction” (IA) and the “Value Release” processes. There are many institutes around the world that offer IPR education, for IPR Management example the WIPO IP Academy. The IP Intellectual Property Rights (IPR) include: Academy of Singapore was also created copyrights, design, patents and on the premises of delivering an IRR trademarks. IPR Management can be seen management capacity to Singapore. IPR as the “legal stream” of Intellectual Management Services is commonly Capital Management (ICM), while offered by law firms that specialise in IPR services offered by many IC Centres management. The interests of the “legal around the world are more closely related stream” and the “business stream” to the “Business Stream” of ICM. The overlap when enterprises wish to exploit exception is the IP Academy of Singapore the value of their Intellectual Assets (IA). which has a strong focus on IP aspects. Hong Kong SAR is a unique territory in APICC does not intend to offered legal China as it has a long established rule of services that are related to the legal stream law tradition (including IP law dating of IPR Management, but will work with back to 1873) and it operates an IPR the legal sector on policy issues relating to regime that is independent of the legal how to make best use of Hong Kong’s system in mainland China. unique legal systems to help develop the Knowledge Economy in Hong Kong and The Intellectual Property Department Mainland China.